Edward Leamer, professor of economics at University of California at Los Angeles, claims that the employment-to-population ratio is a better measure of the job market. Unlike the unemployment rate, changes in labor participation do not affect the statistic.

“It’s people getting so discouraged that they’re dropping out,” said Leamer. He says about half of the decrease in the unemployment rate during the last four months was caused by Americans who gave up looking for work and left the labor force, also known as “discouraged workers”.

Robert Higgs, Senior Fellow at the Independent Institute, states that measuring unemployment is “fraught with many difficulties,” specifically, “the extent to which someone is actually, actively ‘seeking employment.’”

Alan Krueger, former Treasury official and Princeton economics professor, studied the effects of long-term unemployment at Stockholm University. His study concluded that the longer people are without a job, the less time they spend looking for employment.

Various theories have been proposed for persistent dysfunction within the labor market, despite pronouncements of recovery.

Leamer claims that we are experiencing technological unemployment – rapidly changing labor needs in the presence of transitioning technology. Kruger, on the other hand, believes the fault lies with the U.S. education system, for not providing pupils with employable skills.

A working paper by Michael Spence and Sandile Hlatshwayo of New York University revealed that most of the growth in employment between 1990 and 2008 was in the nontradeable sector of the economy. That means commodities not subject to international competition, with government and health care jobs accounting for 40 percent of growth.

The same study saw value-added per person, or the difference between the sale price and cost of production, grow by only 0.7 percent in the almost 20 year period. That appears to explain the limited wage gains. Value-added per person in the tradeable area, which includes manufacturing and financial services, grew an average of 2.3 percent per year.

However, the tradeable area created few jobs, particularly in manufacturing, since many jobs were subject to international competition, and thus moved overseas.

The result appears to have been growing income inequality, since many of the jobs created in the U.S. were low or modestly paid.

“No matter how wealthy you are, you have a problem if half the population is not working and depending on those who are,” says John Goodman, president of the National Center for Policy Analysis.

Or it may be as simple as, if you extend benefits from 26 to 99 weeks you;’re going to get reduced workforce participation as families find it less necessary to have their members try to find employment.

Anonymous

How is it that the employment to population ratio in the 50s -70s is low and the unemployment rate low at the same time? Am I missing somethiing?

http://www.pelicaninstitute.org/ Ferg

That is consistent with more women working in the home in the 1950s through 1970s. These women were not unemployed, since they were not searching for employment. They were also not counted by statisticians as in the labour force, so the employment-to-population rate was lower.

Fergus Hodgson

Anonymous

How is it that from the 50s thru the 70s the employment to population ratio is low and the unemployment rate is low? Am I missing something?